Risks Spillover from Shadow Banks to Commercial Banks

Abstract

Shadow banking system (SBS) has been expanding ever since the 2007-08 global financial crisis. Due to the inner connection between SBS and traditional commercial banking system (CBS), the risks of SBS can easily spread to the other system, increasing the overall banking risks. This study mainly concerns the risks spillover between CBS and SBS based on dynamic model. This study emphasizes on the Chinese banking systems and investigates the risk spillover from SBS to CBS. The empirical results conclude that despite SBS’ large contribution to the risk spillover to the CBS, three types of shadow banks (SBs) have limited and controllable influence over commercial banks (CBs). The results can provide insights for the regulators and investors about the risk spillover effect between SBS and CBS.